Life after disappointment: Merck (MRK)

A $1 billion charge around its Vioxx arthritis drug and a narrow miss on sales forecast should not discourage dividend investors from keeping an eye on pharmaceutical giant Merck (MRK).

Merck (MRK) has followed up a number of its rivals delivering better than expected operating performance but has disappointed on the sales side. This saw the share trade down 1.7% to $35 following the release of third quarter earnings.

This still leaves the share trading on a price to earnings (PE) multiple of 12 times earnings offering investors a tasty dividend yield of 4.4%.

The company, which has paid a dividend every year since 1970, has also had 5 stock splits in its history, providing shareholders with a generous long-term return. $1,000 invested in Merck (MRK) on 29 October 1970 would now be worth $31,704 excluding the reinvestment of dividends.

This might explain why the analyst consensus forecast in the US continues to rate the stock and its peers as a "strong buy".

Delivering results for the third quarter the company delivered $0.85 in earnings per share and sales for the third quarter of $11.1bn. Net income for the third quarter was $342m. For the first nine months of 2010, worldwide sales were $33.9bn and net income was $1.4bn.

Key products are performing well, and at the same time the company is launching new products, advancing its robust R&D pipeline and pursuing merger synergies. One year later, Merck (MRK) is a much stronger, unified organization that is well-positioned for the future.

Merck (MRK) also provided investors with some earnings guidance going forward indicating that full-year 2010 revenue was expected to be between $45.4bn and $46.1bn which included newly introduced U.S. health care reform legislation.

While the Vioxx investigation is ongoing with the US government and weighs on sentiment, Merck’s (MRK) strength is that it is strongly represented in the major pharmaceutical sectors providing it with a diversified earnings base. These include consumer care as well as animal and human health. Importantly it has also continued to release new products into the market, not depending on older patents and products to sustain earnings. These include the intravenous (IV) formulation of BRINAVESS for the treatment of atrial fibrillation in adults, DULERA for the treatment of asthma and DAXAS (roflumilast) for the treatment of symptomatic COPD.

For these reasons it is likely that Merck (MRK) will continue to deliver for dividend investors in the long run.